The Affordable Care Act in 2014: Significant Insurer Losses Despite Substantial Subsidies

31 Pages Posted: 7 Jun 2018

See all articles by Edmund Haislmaier

Edmund Haislmaier

The Heritage Foundation

Douglas Badger

Galen Institute

Seth J. Chandler

University of Houston Law Center

Brian Blase

Independent

Date Written: 04/22/2016

Abstract

The ACA significantly altered the rules governing the individual insurance market, and the general effect was to lower premiums for older and less healthy people and raise premiums for younger and healthier people. To induce younger and healthier people to enroll, the law contained the individual mandate and subsidies for both buyers and, for the first few years of the program, sellers of insurance in the form of premium stabilization programs. This study analyzes data from HHS from 2014, the first year of the ACA’s implementation, and finds that insurers suffered significant losses despite eventually receiving much larger payments from the law’s reinsurance program (one of the premium stabilization programs) than they expected when setting their 2014 premiums. Given the same population and same utilization of services from that population, insurers would have had to price average premiums more than 25 percent higher to avoid losses in the absence of the reinsurance program. While insurers’ performance variedsignificantly across carriers and states, the large overall losses in 2014 raise questions about the long-term stability of the changes made by the ACA, particularly after 2016 when the reinsurance and risk corridor programs end and premium revenue must be sufficient to cover expenses.

Suggested Citation

Haislmaier, Edmund and Badger, Douglas and Chandler, Seth J. and Blase, Brian, The Affordable Care Act in 2014: Significant Insurer Losses Despite Substantial Subsidies (04/22/2016). MERCATUS WORKING PAPER, Available at SSRN: https://ssrn.com/abstract=3191493 or http://dx.doi.org/10.2139/ssrn.3191493

Edmund Haislmaier (Contact Author)

The Heritage Foundation

214 Massachusetts Ave NE
Washington, DC 20002-4999
United States

Douglas Badger

Galen Institute

P.O. Box 320010
Alexandria, VA 22320
United States

Seth J. Chandler

University of Houston Law Center ( email )

4604 Calhoun Road
Houston, TX 77204-6060
United States
713-743-2123 (Phone)
713-743-2131 (Fax)

Brian Blase

Independent

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